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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: It was a pretty stunning upset. Paramounts Guidance finally clinched

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Speaker 2: the deal to buy Warner Brothers Discovery after a month's

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Speaker 2: long bidding war with Netflix. The final price tag one

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Speaker 2: hundred and ten billion dollars thirty one dollars a share.

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Speaker 3: Yeah, it's just about the biggest quite a few years.

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Speaker 2: Bloomberg's Chris Palmery said, that number is just so much

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Speaker 2: bigger than other big media deals we've seen.

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Speaker 3: Go back to Disney, Fox is around seventy eighty billion,

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Speaker 3: So this is a big number. I was surprised because

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Speaker 3: media values have declined in recent years, but the amount

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Speaker 3: of this deal is dramatic.

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Speaker 2: Back in December, Netflix had offered to buy the studio

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Speaker 2: and its streaming business for nearly eighty three billion dollars,

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Speaker 2: and Warner Brothers board accepted. It seemed like the end

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Speaker 2: of the story, but it wasn't. When did the tides

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Speaker 2: actually start to shift toward Paramount.

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Speaker 1: Our reporting indicates it was Saturday, February twenty first.

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Speaker 2: Bloomberg's Lucashaw says that's when Paramount CEO David Ellison called

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Speaker 2: up Warner Brothers CEO David Zaslov And said, we've got

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Speaker 2: an offer that's going to address all your remaining concerns.

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Speaker 1: Paramount submit an offer that was really close to what

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Speaker 1: Warner Brothers wanted, and people who are involved in the

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Speaker 1: deal said that at that point they were on the

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Speaker 1: five yard line.

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Speaker 2: Paramount sky Dance has won a bidding war with Netflix

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Speaker 2: over Warner Brothers Discovery. Paramount's persistence paid off.

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Speaker 1: The board changed their mind money talks. They went to

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Speaker 1: what they thought would get their shareholders paid the most,

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Speaker 1: and as a result, get them paid the most.

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Speaker 2: I'm Sarah Holder, and this is the big take from

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Speaker 2: Bloomberg News today on the show The Anatomy of a Deal,

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Speaker 2: Why Netflix bowed out, the regulatory hurdles that remain, and

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Speaker 2: how these two big movie studios will become one. When

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Speaker 2: the bidding war over Warner Brothers Discovery started in October

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Speaker 2: of last year, we saw ever increasing offers from each side,

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Speaker 2: endless negotiations, and a laundry list of powerful people getting involved,

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Speaker 2: including President Trump. There was even some talk that Netflix

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Speaker 2: may have walked away from the deal because of political pressure,

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Speaker 2: but entertainment and media reporter Lucas Shaw who also writes

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Speaker 2: the screen Time newsletter for Bloomberg, says it really came

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Speaker 2: down to price.

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Speaker 1: It was really a financial decision.

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Speaker 2: Lucas got the first interview with Netflix co CEO Ted

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Speaker 2: Sarandos after his company dropped out of the bidding war

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Speaker 2: for Paramount.

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Speaker 1: Ted was adamant that this had nothing to do with politics,

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Speaker 1: despite a lot of the speculation, because he'd been in

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Speaker 1: DC the week really the day that Netflix pulled out

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Speaker 1: and had been to the White House, had met with

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Speaker 1: the Department of Justice. They had put forth their best

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Speaker 1: and final offer at the in early December, and that

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Speaker 1: Paramount kept revising its offer. David Ellison had made it

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Speaker 1: clear that not only was he coming over the top here,

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Speaker 1: but that he would continue to bid more and that

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Speaker 1: they viewed him as an irrational buyer.

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Speaker 2: So Netflix walked away, but not empty handed. The company

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Speaker 2: got a big breakup fee from Paramount and a bump

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Speaker 2: and share price from investors who weren't totally sold on

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Speaker 2: the plan to buy Warner Brothers in the first place.

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Speaker 3: There's talkers up and they got paid two point eight billion,

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Speaker 3: which will make you a lot of Adam Sandler movies

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Speaker 3: pretty quick.

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Speaker 2: Bloomberg's Entertainment and telecom reporter Chris Palmery.

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Speaker 3: People often say that's best deals are the ones you

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Speaker 3: never do. I think that's certainly the case in Netflix.

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Speaker 2: So Lucas going back in time a little bit, Why

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Speaker 2: has everyone wanted Warner Brothers Discovery? These two of studios

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Speaker 2: Netflix and Paramounts Guidance have spent a lot of time,

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Speaker 2: a lot of energy, and a lot of money to

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Speaker 2: acquire it. What made it worth fighting for so hard?

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Speaker 1: Well, it's a rare asset, right. Warner Brothers is one of,

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Speaker 1: if not the most productive studio in Hollywood. If you

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Speaker 1: look across film and television, it's kind of year after year,

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Speaker 1: probably the number two or three movie studio after Disney.

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Speaker 1: It's television studio produces some of the most popular shows

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Speaker 1: in the world, Ted lassa Abbat Elementary. It's the home

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Speaker 1: of Friends and Big Bang Theory. It's got HBO, which

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Speaker 1: is both a great brand and a library of hit programs,

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Speaker 1: And so I think people always see potential in that

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Speaker 1: it's never really been realized by one of these owners.

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Speaker 1: People try to figure out how to better position HBO

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Speaker 1: as a competitor to Netflix, how to use the studio,

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Speaker 1: and it hasn't quite panned out, but it doesn't stop

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Speaker 1: people from always wanting to try, because there are only

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Speaker 1: so many studios you can buy.

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Speaker 2: Unique as Warner Brothers may be. Chris says it was

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Speaker 2: surprising to see David Ellison put his hat in the

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Speaker 2: ring to try and buy it because he'd only recently

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Speaker 2: taken over Paramount. Ellison's company, Skydance Media, announced it would

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Speaker 2: take control of the studio for eight billion dollars in

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Speaker 2: twenty twenty four. The deal took nearly a year to

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Speaker 2: finalize after going through regulatory hurdles and FCC approval.

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Speaker 3: David Ellison fought a very hard fought battle to take

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Speaker 3: control of Paramount and just close on that deal in

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Speaker 3: August of last year, and literally a month later he

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Speaker 3: was bidding for Warner Brothers staggering amount of work to

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Speaker 3: you know, consolidate Paramount and then to try to buy

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Speaker 3: an even bigger company. And so nineteen dollars a share

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Speaker 3: was his first offer. There was eight or nine offers

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Speaker 3: since then. That steady drum beat. I mean it was

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Speaker 3: a multi pronged attack, if you will, on the Netflix

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Speaker 3: deal by David Ellison in Paramount They went to shareholders

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Speaker 3: and they said, you know, there should be a bidding

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Speaker 3: war here. We're offering more. That deal isn't good. You know.

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Speaker 3: They went to politicians and played every card they could

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Speaker 3: in that department.

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Speaker 2: David Elison went to the White House, he went overseas.

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Speaker 3: Meeting the President, meeting with regulators, everyone.

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Speaker 2: You can imagine, you gave us some context for that

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Speaker 2: one hundred and ten billion dollar figure, just how big

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Speaker 2: that is in the scale of other media company deals.

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Speaker 2: But is there a danger that they're overpaying?

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Speaker 3: Oh yeah, I've joked many times that I don't know

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Speaker 3: if you think it's a joke, but this company is

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Speaker 3: like the King Tut's Tomb of corporate world because everyone

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Speaker 3: that touches it has sort of cursed. You think about

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Speaker 3: AOL buying it at and t buying it, then the

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Speaker 3: Discovery merger. None of those deals have worked, and so

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Speaker 3: this is going to be a major challenge. The story

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Speaker 3: will not be over by September thirtieth, or whenever they

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Speaker 3: hope to close this deal. It's going to be major consolidation.

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Speaker 3: We've never really seen consolidation of two Hollywood studios like this.

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Speaker 3: This is a situation where you'll have two separate studio lots,

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Speaker 3: Paramount and Warner, two separate movie studios, different people heading those.

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Speaker 3: That's not really been the case ever, so we'll have

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Speaker 3: to see how that works. Major consolidation in the cable networks.

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Speaker 3: So you know, this is now a business that will

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Speaker 3: stretch from MTV and HGTV, CBS, I mean, just a

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Speaker 3: huge television arm that's facing major challenges because of the

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Speaker 3: meltdown of traditional TV. And then this consolidation, which is

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Speaker 3: really what this is all about, the streaming business. So

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Speaker 3: HBO Max and Paramount Plus becomes one. You know, they'll

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Speaker 3: still be facing five or six other major competitors. Can

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Speaker 3: they make that work? Can they make that payoff?

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Speaker 2: It's a lot of work ahead to pay for Warner Brothers.

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Speaker 2: The Ellison family and their partner, Redbird Capital have pledged

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Speaker 2: to invest forty seven billion dollars in the deal. Some

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Speaker 2: of that money will likely come from other equity partners,

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Speaker 2: including three Middle Eastern sovereign wealth funds identified in public filings.

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Speaker 2: And then there's the debt.

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Speaker 3: They're taking on an enormous amount of debt, well north

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Speaker 3: of seventy billion dollars to complete this transaction.

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Speaker 1: Pocket change.

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Speaker 2: Yeah, yeah, yeah, it's not nothing. Well, Lucas we talked

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Speaker 2: about how adamant Netflix was that politics wasn't behind their

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Speaker 2: decision to stand down here. But as we mentioned before,

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Speaker 2: Paramount CEO David Ellison was lobbying hard for President Trump support,

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Speaker 2: and Trump wasn't shy about rooting for Paramount in this

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Speaker 2: s bidding war. So I'm wondering if you think politics

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Speaker 2: had any influence on the outcome of this deal.

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Speaker 1: I think Trump had pretty minimal influence. Where politics had

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Speaker 1: the most influence was on the Warner Brothers shareholders. Right

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Speaker 1: after Warner Brothers announced it deal with Netflix, what the

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Speaker 1: Allisons did really effectively was kind of rally a bunch

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Speaker 1: of other people to oppose the deal and be concerned

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Speaker 1: about it. That was senators, that was Republican attorneys general.

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Speaker 1: They certainly worked the Department of Justice, and even you

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Speaker 1: know figures in hollywo They really scared about the deal.

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Speaker 1: And so all of this, this feeling that the Netflix

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Speaker 1: deal would face a stiff review, whether it was in

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Speaker 1: the US or Europe, spooked a lot of Warner Brothers

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Speaker 1: shareholders who were just saying, I want my money now, like,

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Speaker 1: get me as much money as quickly as possible. Let's

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Speaker 1: get out of this, and they started to make a

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Speaker 1: lot of noise and put pressure on the Warner Brothers board.

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Speaker 1: So though I think Trump and politics played a factor

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Speaker 1: in a lot of the decision making it, it was

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Speaker 1: strongest with influencing Warner Brothers shareholders, who then in turn

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Speaker 1: influenced the Warner Brothers board.

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Speaker 2: After the break, what will it take to bring these

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Speaker 2: two big studios together? Past mergers might hold some answers,

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Speaker 2: plus how the deal could impact the news and content

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Speaker 2: you watch in stream. The bidding war is over and

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Speaker 2: Bloomberg's Lucas Shaw and as Paul Mary told me, that

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Speaker 2: now comes the even harder part combining Paramount's Guidance and

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Speaker 2: Warner Brothers Discovery into one mega studio.

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Speaker 1: There's a tremendous amount of overlap. They both own film

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Speaker 1: and TV studios, they both own cable networks, they both

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Speaker 1: own streaming services. There is very little that one does

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Speaker 1: that the other doesn't do, which is why it's a

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Speaker 1: kind of widely held belief that this will result in

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Speaker 1: thousands of job losses. Paramount, when they initially were talking

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Speaker 1: about their deal, I think touted about six billion dollars

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Speaker 1: in synergies. Some people think it might be even higher.

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Speaker 1: Exactly what that's going to look like remains to be seen. Right,

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Speaker 1: Are they going to keep Paramount and Warner Brothers as

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Speaker 1: independent labels as studios are combined them? They're going to

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Speaker 1: say that they're independent and that they're going to increase

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Speaker 1: output in both places. The history of mergers suggests that

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Speaker 1: they will in fact curtail output over time, but they

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Speaker 1: have to say they're going to boost it to get

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Speaker 1: it approved. Same deal on the TV studio side with

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Speaker 1: the TV networks, I assume it's going to be a bloodbath.

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Speaker 1: They're just going to fire a ton of people and

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Speaker 1: merge all those to get.

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Speaker 3: Yeah, David Elisson has really pounded the table and said

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Speaker 3: they're going to make more content, more movies, more TV shows.

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Speaker 3: It's going to be a giant, unwieldy conglomerate with all

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Speaker 3: of these different parts competing for attention and for money.

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Speaker 3: Whether that translates into more content or they ultimately put

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Speaker 3: pressure onto cut costs and maybe less choice for us.

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Speaker 2: You mentioned looking at history to kind of serve as

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Speaker 2: a guide to how a merger like this might play out.

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Speaker 2: What is the track record of these types of massive

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Speaker 2: media mergers when you combine something like Warner Brothers and

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Speaker 2: Paramount piss.

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Speaker 1: Poor would be the answer. There has never been one

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Speaker 1: of these deal. These deals don't work, right. I mean,

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Speaker 1: I just look at the history of Warner Brothers. Right,

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Speaker 1: time Warner merged with AOL kind of textbook example of

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Speaker 1: one of the worst mergers in the history of business.

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Speaker 1: Forget just the entertainment business. Time Warner sells to AT

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Speaker 1: and T that didn't work very well. Warner Media merges

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Speaker 1: with Discovery that doesn't work very well. Brings us to

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Speaker 1: this point. There just are not a lot of examples,

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Speaker 1: at least in the entertainment business, of multi billion dollar

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Speaker 1: deals that worked out well for the acquirer.

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Speaker 2: Yeah, I mean, if the track record of these kinds

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Speaker 2: of media mergers is so disastrous, is his poor. As

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Speaker 2: Lucas said, why keep trying Hubri's ego?

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Speaker 3: You know, if you're struggling and you've tried everything else,

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Speaker 3: cutting costs, you know, spending on these rights or this rights,

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Speaker 3: then the idea of just oh I'll just bulk up.

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Speaker 3: It'll be so much easier if I just buy them.

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Speaker 3: I think that's compelling argument that people can make to themselves,

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Speaker 3: and consultants make to them, and bankers make to them.

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Speaker 3: But ultimately I think there's a lot of ego in

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Speaker 3: this as well.

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Speaker 2: We touched on the regulatory pressure and Netflix Warner Brothers

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Speaker 2: merger may have encountered. What about Paramount Warner Brothers. What

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Speaker 2: does a regulatory landscape look like there?

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Speaker 1: Well, by a lot of traditional metrics, the Paramount Deiald

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Speaker 1: is actually worse from a regulatory perspective, or one that

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Speaker 1: would be more likely to face scrutiny because you're combining

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Speaker 1: like assets, right, So you're combining two movie studios, it

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Speaker 1: creates one movie studio that would have north of twenty

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Speaker 1: percent market share. More than likely you're combining a bunch

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Speaker 1: of cable networks, and then you add in some of

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Speaker 1: the less consumer facing ones. But more the monopsy the ecosystem,

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Speaker 1: it's impact on suppliers. It's going to be one of,

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Speaker 1: if not the biggest producer of film and television in

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Speaker 1: the world, and so what kind of market power will

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Speaker 1: it have over writers and directors.

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Speaker 2: And how might that regulatory scrutiny play out over the

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Speaker 2: next few months.

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Speaker 1: It seems pretty clear that the Department of Justice is

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Speaker 1: not going to go after this deal. They've sort of

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Speaker 1: already breezed through a lot of it. They may have

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Speaker 1: to resubmit what they're doing, but nobody's expecting the DOJ

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Speaker 1: to file suit against it. The main questions are in

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Speaker 1: Europe and with state attorneys general from democratic states, you know.

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Speaker 1: I think in Europe there will be a review and

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Speaker 1: there might need to be kind of one or two

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Speaker 1: changes made, maybe a divestment or two, but nobody's expecting

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Speaker 1: it to block the full deal. I think you could

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Speaker 1: see state attorneys general try to block the whole deal.

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Speaker 1: Whether they'll be successful is sort of anyone's guests. I

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Speaker 1: think more likely there would need to be some remedies,

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Speaker 1: sort of like in Europe, Lucas.

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Speaker 2: If this goes through, a lot of viewers are worried

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Speaker 2: about how this might impact the content they consume. For example,

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Speaker 2: if we look at news media, Paramount already owns CBS.

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Speaker 2: Allison hired Barry Weiss to be CBS's editor in chief,

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Speaker 2: and she's been critical of mainstream media outlets, accusing them

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Speaker 2: of liberal bias. She's opposed to cancel culture views that

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Speaker 2: make her popular with conservatives, and she's already clashed with

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Speaker 2: some in the newsroom over editorial direction and concerns that

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Speaker 2: she's willing to appease the Trump administration. What does it

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Speaker 2: mean for the news landscape in the US if Paramount

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Speaker 2: now also owns CNN.

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Speaker 1: That one's hard to say, because I don't sense that

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Speaker 1: David Ellison is spending a significant amount of his time

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Speaker 1: thinking about the news business. It's not his number one priority.

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Speaker 1: He's been more focused on film and television and entertainment. Obviously,

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Speaker 1: the big concern that some people have is that because

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Speaker 1: the Ellison's, in particular Larry Ellison, is close to Donald

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Speaker 1: Trump and Republican politicians, that those sort of tilt CNN

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Speaker 1: more to the right. They have not said anything to

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Speaker 1: suggest that they're going to do that, but it's understandable

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Speaker 1: why people would be concerned about it.

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Speaker 2: Recently, in an interview with CNBC, David Ellison tried to

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Speaker 2: reassure journalists at CNN, saying that quote, editorial independence will

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Speaker 2: absolutely be maintained.

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Speaker 1: The comment certainly didn't surprise me. He's going to say

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Speaker 1: whatever he needs to do to sort of appease and

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Speaker 1: mollify folks. CBS News was not a centerpiece of his

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Speaker 1: strategy for Paramount, nor is CNN going to be a

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Speaker 1: centerpiece of his strategy for Warner Brothers. It is a

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Speaker 1: nice asset to buy, but if you told him that

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Speaker 1: he could buy it without CNN, I'm sure he'd be

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Speaker 1: happy to do that.

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Speaker 2: We've been talking about media consolidation broadly in this country,

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Speaker 2: but there's also been consolidation of the media happening under

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Speaker 2: the Ellison family. I'm wondering what completing this deal would

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Speaker 2: mean for the Ellison's power and influence over the media

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Speaker 2: business in the US.

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Speaker 1: I mean, it puts them in charge of one of

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Speaker 1: the largest and most powerful media empires in the world,

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Speaker 1: two studios, dozens of TV networks, two major streaming services,

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Speaker 1: you know, by kind of any measurement, but in terms

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Speaker 1: of revenue, in terms of market cap, in terms of

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Speaker 1: streaming subscribers. It makes them the owners of one of

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Speaker 1: the three to five biggest media companies in the world.

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Speaker 3: And of course Oracle just investment in TikTok as well.

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Speaker 3: So certainly part of this narrative that there's a sort

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Speaker 3: of a broader, more conservative takeover of the mainstream media.

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Speaker 3: And I guess you can argue whether that's good or

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Speaker 3: bad depending on your politics, but many people have made

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Speaker 3: the case that the Paramount is moving in that direction.

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Speaker 1: To Chris's point, what are David Elson's plans for this

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Speaker 1: massive company that he's now in charge of? I mean,

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Speaker 1: he went from running, you know, a relatively small business

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Speaker 1: and guidance the leveling up and running a much bigger

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Speaker 1: business in Paramount, and now he's going to be on

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Speaker 1: top of something tens of thousands employees. It's just unlike

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Speaker 1: anything he's done before.

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Speaker 2: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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